June 29, 2005

Estonia calls on Russia to back fair business ties

Eastern parts of Estonia are highly interested in investment from Russian business, as well as in mutual understanding with Moscow in order to develop pre-border transport infrastructure, Estonian officials and businessmen said earlier this month.

The Baltic side said that the two countries urgently need to address the issue of transit transportation, since Estonia's through routes are overloaded and dilapidating.

Daily freight traffic passing through Narva, the capital of Ida Viruma district in Estonia, has come to choke the city. All day and night, trucks bludgeon over the city's old, narrow bridge to reach the Russian border.

"A new bridge is needed there and in order to build it we require financial assistance from the Russian Federation," Ago Silde, the official elder of Ida Viruma, told Russian businesses this month.

Speaking at a meeting organized jointly by ...........

............ the St. Petersburg International Business Association, the Estonian Trade Chamber and the official bodies of Narva and Tallinn, Silde stressed the need for cross-border cooperation.

Cargo volumes at the Ivangorod-Narva border checkpoint have jumped 33 percent just in the first five months of this year. The tempo is expected to heighten after Estonia opens the first part of its Silamae port that has the capacity to serve 500 trucks a day.

"Our ministers have already approached [the Kremlin]," Silde said. He urged the Russian government to consider setting up conditions for an infrastructure that would benefit traffic in both directions.

The Estonian government has invested about EEK 7 million (USD 583,000) into new bridge planning. The total costs of bridge construction will hit EEK 1 billion (USD 35.7 million), about the same as was invested in the first part of the Silamae port, the elder said.

Estonia is expecting some cash injection for the project to come from the European Union, but wants a similar backing from the Russians too. The construction of a bridge over Narva river is planned to start in 2007, to be completed by 2009.

The port of Sillamae is eyed by Estonian businesses as more than a potential competitor to the Ust-Luga port being constructed in the Leningrad Oblast.

PORT WARS

While the Oblast port project has been hampered for several years by alleged misuse of building funds and bureaucracy, resulting in just one of the planned eight terminals being built, the port in Sillamae has neared a full launch already this fall.

"For the moment, an oil terminal and a liquid resources terminal have been completed at the Sillamae port," Silde said. A container terminal will be ready soon, he said.

"In May this year we had a pilot launch of a new passenger shipping line between Sillamae and Kotka, which in the future will be developed to encompass a triangular route connecting the ports of Kotka, Silamae and St. Petersburg. This line is expected to start working in May 2006," he said.

Last month, the port signed its first contracts with operators, including Sillamae Oil Terminal Ltd., Tankchem Ltd., and Sillgas Ltd.

In addition, Sillamae has a natural advantage over its Ust Luga rival, said management of the Estonian port. The Russian harbor stands by a shallow riverbed that is insufficiently deep to serve most cargo ships, the management said.

"The port in Ust Luga is being build in conditions that are against nature," said Tynis Seesmaa, member of the board for Silmet Kinnisvara, the managing company of the Silamae port.

"They have dug a 7 meters to 9 meters shipping channel at the sandy bottom of the Finnish Gulf, which means it will need constant attention, because sand has a tendency to slip all the time," Seesmaa said. The Sillamae port has a 16-meter deep shipping channel, he said.

Seesmaa said the Ust Luga project, being funded by the state without outside, private investments seemed to lack an idea of its future application. "It looks as though it's being built just in favor of the construction process itself," he said.

The first part of the Silamae includes two 16-meter deep oil products quays, 1 12-meter liquid chemicals quay, and three 12-meter general cargo quays. The port will have two connection routes to the St. Petersburg-Tallinn highway.

Besides shipping facilities, 600 hectares of Sillamae port's territory has been nominated as a special economic zone. Its area is available for construction of distribution and manufacturing facilities that will be excluded from Value Added Tax payments, customs duties and excise taxes on transit cargo, as well as corporate income tax on retained earnings.

TAX FREE ZONES

Cargo market analysts say the offer of attractive investment facilities and reliable infrastructure just 30 kilometers from the Estonian-Russian border could result in a significant number of businesses relocating operations to the Baltic ports.

"In the light of problems aired in the press regarding the construction of ports in the Baltic region of Russia, two transit hotspots have appeared in Estonia [the ports of Sillamae and Muuga] that can capture the main part of the domestic cargo business despite any protective measures undertaken by the Russian government," said Dmitry Kondrashev, a St. Petersburg-based analyst.

"Joint efforts, with Russian, European, American and Estonian capital has led to the creation of a full, modern and efficient railway and port transit infrastructure in Estonia," he said in a recent freight market research for Regnum news agency.

FLOWING OUT OF RUSSIA

Medium-size Russian business interested in exports to the EU has already started to edge to the Baltic, seeking the favorable investment conditions promised by the Estonian state.

Alexander Brokk manages Nakro business park on the site of an old leather factory in Narva. Since the factory's bankruptcy more than 12 years ago, Brokk has turned the space into a profitable territory for business, which now accommodates 30 companies with 600 employees.